Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Equity Bottom-Up

<p>Following the completion of <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a>’ voluntary exchange offer for <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> shares, we are left with management having achieved their goal of meaningfully reducing Naspers’ overweight position on the notable South African equity indices (a key driver of the discount to NAV), and increasing the Prosus free float materially, with a commensurate increase in index weightings. It has also left us with a cross-holding structure which has significantly increased the complexity of trading dynamics, increased currency risk exposures, and a reduced corporate governance perception of the group. </p>
<p>In a detailed insight last year (<a href="https://www.smartkarma.com/insights/naspers-double-discount-warranted-the-search-for-a-catalyst-continues" target="_blank" data-smartkarma-citation="insights:44014" rel="noopener">Naspers: “Double” Discount Warranted? The Search for a Catalyst Continues</a>), I analysed what I believed to be the 6 key drivers of Prosus’ and Naspers’ holding company discounts to find a catalyst for value unlock, and perhaps an interesting, discounted entry point to <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>. Following the exchange offer, which has just been concluded, I revisit these drivers and update the fundamental sum-of-the-parts valuations for both Prosus and Naspers.</p>

Following the completion of Prosus (PRX NA)’ voluntary exchange offer for Naspers (NPN SJ) shares, we are left with management having achieved their goal of meaningfully reducing Naspers’ overweight position on the notable South African equity indices (a key driver of the discount to NAV), and increasing the Prosus free float materially, with a commensurate increase in index weightings. It has also left us with a cross-holding structure which has significantly increased the complexity of trading dynamics, increased currency risk exposures, and a reduced corporate governance perception of the group. 
In a detailed insight last year (Naspers: “Double” Discount Warranted? The Search for a Catalyst Continues), I analysed what I believed to be the 6 key drivers of Prosus’ and Naspers’ holding company discounts to find a catalyst for value unlock, and perhaps an interesting, discounted entry point to Tencent (700 HK). Following the exchange offer, which has just been concluded, I revisit these drivers and update the fundamental sum-of-the-parts valuations for both Prosus and Naspers.

Prosus/Naspers: Fundamental Drivers of the Discount Revisited Post the Exchange Offer

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>I said on Monday that I would have wanted to be long the <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> discount to <a href="https://www.smartkarma.com/entities/prosus-nv-2e2a2230-64b0-4044-b797-a3880fcb487a" target="_blank" data-smartkarma-citation="entities:28301:1" rel="noopener">Prosus NV (PRX SJ)</a> Exchange Offer Terms (i.e. short Naspers vs PRX) at 670bp which is where it was as I published <a href="https://www.smartkarma.com/insights/naspers-deal-done-flex-participation-and-pro-ration-misunderstandings-and-index-changes-galore" target="_blank" data-smartkarma-citation="insights:56011" rel="noopener">Naspers Deal Done - Flex Participation and Pro-Ration, Misunderstandings, and INDEX CHANGES GALORE!</a></p><p>That turned out OK.</p><p>It traded to the 1600-1700bp level late in the day and appears to have closed at ~19% on a sharp move in both names at the South African close. </p><p>The Dutch ticker for <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> saw a substantial pick-up in volume after the South African close and the final print was on roughly €2.7bn of volume but the shares fell 1% in the last five minutes then 2.5%+ on the final print.  </p><p>So that's done. It was good to be bearish. Now we look at the NEXT step. </p><p>First, there will be SOME DATA collected on 20 August. It is not clear whether it will be disclosed on 23-24 Aug (some people will know it because it is paid data, but it may not be that publicly known, and I may not know it, even if I have a pretty good idea) or if it will be disclosed only on the first of September when OTHER DATA will be disclosed. At that time, I expect some people will be mildly surprised. </p><p>There is a chance of STILL OTHER INPUT to be disruptive. If that happens, then there could be a flip-flop on the September event, and <em>I</em> will be surprised. But I rather expect any decision on STILL OTHER INPUT will be left until Q4 at the very earliest. </p><p>Weirdly, the SOME DATA and OTHER DATA will cause <em>Some People</em> to do <em>Some Things</em> which will, interestingly, cause NEXT STAGE OTHER DATA to be created. That will in turn cause the above-mentioned <em>Some People</em> to do <em>Some of the Same Things</em> again in December.</p><p>It is weirdly recursive, but that is the way the cookie crumbles.</p><p>It is worth looking at how this shakes out. </p>

I said on Monday that I would have wanted to be long the Naspers (NPN SJ) discount to Prosus NV (PRX SJ) Exchange Offer Terms (i.e. short Naspers vs PRX) at 670bp which is where it was as I published Naspers Deal Done - Flex Participation and Pro-Ration, Misunderstandings, and INDEX CHANGES GALORE!That turned out OK.It traded to the 1600-1700bp level late in the day and appears to have closed at ~19% on a sharp move in both names at the South African close. The Dutch ticker for Prosus (PRX NA) saw a substantial pick-up in volume after the South African close and the final print was on roughly €2.7bn of volume but the shares fell 1% in the last five minutes then 2.5%+ on the final print.  So that's done. It was good to be bearish. Now we look at the NEXT step. First, there will be SOME DATA collected on 20 August. It is not clear whether it will be disclosed on 23-24 Aug (some people will know it because it is paid data, but it may not be that publicly known, and I may not know it, even if I have a pretty good idea) or if it will be disclosed only on the first of September when OTHER DATA will be disclosed. At that time, I expect some people will be mildly surprised. There is a chance of STILL OTHER INPUT to be disruptive. If that happens, then there could be a flip-flop on the September event, and I will be surprised. But I rather expect any decision on STILL OTHER INPUT will be left until Q4 at the very earliest. Weirdly, the SOME DATA and OTHER DATA will cause Some People to do Some Things which will, interestingly, cause NEXT STAGE OTHER DATA to be created. That will in turn cause the above-mentioned Some People to do Some of the Same Things again in December.It is weirdly recursive, but that is the way the cookie crumbles.It is worth looking at how this shakes out. 

Naspers/Prosus Initial Index Changes Done, Now To Reverse the Trade

David Blennerhassett

Melco International Development / Equity Bottom-Up

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<p>This week in StubWorld  ...</p>
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<p>With the clock ticking and less than one year until the Macau gaming concession renewal, a simple extension appears the logical course of action. Yet a Macanese government consultation paper believes the VIP room model is untenable under the SAR's national security law.</p>
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<p>Preceding my comments on Wynn are the updated setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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<p>As always, more below the fold.</p>
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This week in StubWorld  ...




With the clock ticking and less than one year until the Macau gaming concession renewal, a simple extension appears the logical course of action. Yet a Macanese government consultation paper believes the VIP room model is untenable under the SAR's national security law.




Preceding my comments on Wynn are the updated setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


As always, more below the fold.


StubWorld: Gambling On Macau's Gaming Concession Renewal

<p>The <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> Exchange Offer to buy 45.33% of <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> closed Friday at noon Johannesburg time and just 2 hours later, we had the result (would that other offers around the world would be so quick to announce. </p>
<p>It has been a nerve-wracking couple of days for arbitrageurs, perhaps upset that the spread trading ex-event has had the sheer audacity to trade as wide as was implied in the days before it went ex- by the minimum pro-ration and the borrow market. At 5% before and prevailing borrow rates at the time, shorting and getting done on 47.6% of the borrow meant the breakeven between buying at 5% beforehand and buying to cover ex- was at 9.5% to terms.</p>
<p>The event is now done, and this morning pre-open there is <a href="https://www.prosus.com/news/the-implementation-of-the-capital-restructure-and-the-results-of-the-exchange-offer/" target="_blank" rel="noopener">more detail</a> with pro-ration coming in at 64% for those who participated on an uncapped basis. </p>
<p>I had the wider range at 54-64% as discussed in my last few insights (but that range was pretty much that from the start) with a narrower range tilted towards the lower end.</p>
<p>The fact that it came in at 64% <em>overall</em> (the numbers are a bit weird) tells us something. <em>It tells us quite a bit in fact. </em><br><br>Helpfully, many of the major index providers also announced on Friday night which means there is potentially a LOT of paper to move on Tuesday afternoon. </p>
<p>Today, the first day of trading of the new shares, both Naspers and Prosus are trading much more liquidly AND surprisingly, the spread is reasonably stable, caught just now at 666bp to terms.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/947/original/Screenshot+2021-08-16+at+6.00.51+PM.png?1629108107" class="editor-image img-responsive" data-smartkarma-image-id="223947"></figure>
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<p>This is trading narrower than I would have expected by a couple of percent which suggests to me that index investors participated, and some arbs simply borrowed and shorted Naspers to get the result here, going from no economics to a long Prosus short Naspers position, and long-only active investors may be unwinding into that cover demand. </p>
<p>But because this involves a lot of data and details, there is <em>a lot</em> more below the fold.</p>

The Prosus (PRX NA) Exchange Offer to buy 45.33% of Naspers (NPN SJ) closed Friday at noon Johannesburg time and just 2 hours later, we had the result (would that other offers around the world would be so quick to announce. 
It has been a nerve-wracking couple of days for arbitrageurs, perhaps upset that the spread trading ex-event has had the sheer audacity to trade as wide as was implied in the days before it went ex- by the minimum pro-ration and the borrow market. At 5% before and prevailing borrow rates at the time, shorting and getting done on 47.6% of the borrow meant the breakeven between buying at 5% beforehand and buying to cover ex- was at 9.5% to terms.
The event is now done, and this morning pre-open there is more detail with pro-ration coming in at 64% for those who participated on an uncapped basis. 
I had the wider range at 54-64% as discussed in my last few insights (but that range was pretty much that from the start) with a narrower range tilted towards the lower end.
The fact that it came in at 64% overall (the numbers are a bit weird) tells us something. It tells us quite a bit in fact.   Helpfully, many of the major index providers also announced on Friday night which means there is potentially a LOT of paper to move on Tuesday afternoon. 
Today, the first day of trading of the new shares, both Naspers and Prosus are trading much more liquidly AND surprisingly, the spread is reasonably stable, caught just now at 666bp to terms.



This is trading narrower than I would have expected by a couple of percent which suggests to me that index investors participated, and some arbs simply borrowed and shorted Naspers to get the result here, going from no economics to a long Prosus short Naspers position, and long-only active investors may be unwinding into that cover demand. 
But because this involves a lot of data and details, there is a lot more below the fold.

Naspers Deal Done - Flex Participation and Pro-Ration, Misunderstandings, and INDEX CHANGES GALORE!

<p>Today is the last day of trading for the Naspers Exchange Offer before it goes ex- tomorrow. A number of investors and traders will find it impossible to buy and offer their shares through normal settlement mechanisms and could only do so on swap as normal corporate action windows would have closed.</p><p>That said, after a brief hiccup this morning, the spread is trading quite stably where it was yesterday at 4.8-5.3%. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/127/original/Screenshot+2021-08-10+at+7.16.18+PM.png?1628594193" class="editor-image img-responsive" data-smartkarma-image-id="223127"></figure><p></p></section><p>Going forward, the process of spread change, and flow impacts will hop around a bit, and this is a brief guide to that timing and expected influence.</p>

Today is the last day of trading for the Naspers Exchange Offer before it goes ex- tomorrow. A number of investors and traders will find it impossible to buy and offer their shares through normal settlement mechanisms and could only do so on swap as normal corporate action windows would have closed.That said, after a brief hiccup this morning, the spread is trading quite stably where it was yesterday at 4.8-5.3%. Going forward, the process of spread change, and flow impacts will hop around a bit, and this is a brief guide to that timing and expected influence.

China

Prosus N.V. provides internet based services. The Company focuses on investments in internet, digital media, e-commerce retailing, and consumer internet companies. Prosus serves customers worldwide.

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Prosus NV (PRX NA)

Prosus/Naspers: Fundamental Drivers of the Discount Revisited Post the Exchange Offer

In this insight, and following the completion of their exchange offer, I revisit what I believe to be the 6 key fundamental drivers of the Naspers...

Wium Malan, CFA

Naspers/Prosus Initial Index Changes Done, Now To Reverse the Trade

The short Naspers long Prosus trade on the back end Monday worked a charm. Now it's time to reverse it. This was a trade of steps. Still is.

Travis Lundy

StubWorld: Gambling On Macau's Gaming Concession Renewal

The clock is ticking with less than one year until the Macau gaming concession renewal, a simple extension appears the logical course of action.

David Blennerhassett

Naspers Deal Done - Flex Participation and Pro-Ration, Misunderstandings, and INDEX CHANGES GALORE!

The Naspers deal is done, pro-ration is out. For those who went uncapped, it was 64%. This indicates a basic minimum of ~80% participation. Index...

Travis Lundy

Naspers/Prosus - Now We Go Ex-Offer

Naspers goes ex-Offer on Wednesday 11 August. The Offer closes 13 August. We could see a price dip on NPN between, which could encourage pro-ration...

Travis Lundy

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